The economic impact of advertising is like the first blow of any company to the outside world. In recent years, advertising for certain legal products has become increasingly restricted. This overlooks the fact that the state should regulate as little as possible to allow entrepreneurial initiatives to flourish. It is not the role of the state to impose a particular lifestyle on consumers or to steer the consumption of legal products.
The hawkers of ancient Egypt were already advertising. They tried to capture the attention of passers-by. What contributed to the success or failure of a business back then is still valid in today’s market economy: without advertising, a business cannot function. Healthy competition presupposes that service providers can publicly promote their products and show how they differ from the competition. Anyone marketing a legal, over-the-counter product must be able to advertise its availability and demonstrate its benefits.
The economic impact of advertising on prices
When companies use advertising, there is an increase in sales, which also causes an increase in the standard of living of consumers. Essentially, advertising expenditure causes a chain reaction that boosts an area of the economy.
Advertising can control prices. Marketing stimulates competition. When one company advertises its product at one price, its competitors want to stay in the same price category. These manipulations lead to competition.
Although advertising adds value to products, this does not mean that it also adds cost. For some advertised products cost less than non-advertised products, but not vice versa. The Federal Trade Commission and the U.S. Supreme Court ruled that, by stimulating competition, advertising keeps prices down.
Restrictions on competition
Advertising restrictions may prohibit small businesses from playing on an equal footing with large firms due to budgetary constraints. Increased rivalry affects the market. It eliminates some weak companies, which increases the sales and longevity of other companies. You have to advertise your company alone, but it is not known whether the company will be able to break through among competitors. It all depends on the funds that an entrepreneur can allocate to the development of a marketing strategy.
The fundamental problem addressed by advertising in its broadest sense (communication, marketing, etc.) is the asymmetry of information between supply and demand. Consumers are not magically aware of the diversity of offers available to them. And yet, they will have to make a consumer choice. So the company needs a way of communicating what it sells and explaining what differentiates it from the competition.
The Economic Impact of Advertising on Consumer Choice
Advertising serves to launch new products by providing more “perfect information” to more people, thereby stimulating demand for a class of goods. But in declining markets where the only information of interest is price information, it can only slow the speed of decline.
The principle of abundance, which eloquently demonstrates the importance of advertising in the economy. It states that- In an economy that produces more goods and services than it can consume, advertising serves two important purposes:
- It keeps the public informed about its alternatives (perfect information).
- It allows companies to compete more effectively for consumers’ money (self-interest).
Advertising serves to create better informed, knowledgeable, and discerning consumers. Thus, consumers are now demanding that manufacturers take responsibility for their advertising.
For manufacturers, improving the competition is about differentiating their products. The freedom to advertise encourages companies to create new brands and improve old ones. When one brand gains market dominance, smaller brands may disappear for some time. But when a company invents a better product and advertises skillfully, the dominant brand will either lose to it or gain market share. Again, the right of publicity favors the existence of more suppliers, thus offering more choices to the public.
Advertising bans harm the economy
The impact of advertising bans should not be underestimated. They prevent advertising from deploying its positive effects for consumers and businesses alike. Advertising provides visibility and the opportunity to stand out from other products and highlight differences. In so doing, it contributes to market transparency.
Consumers are better informed and can make better decisions. Advertising helps to harmonize supply and demand, reinforcing dynamic competition. Advertising bans, on the other hand, hinder the market entry of new products, cement market structures and protect monopolies. They also hinder innovation: positive sales prospects for products encourage companies to invest in research and development. Advertising bans are therefore an obstacle to progress in society.
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